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The role of neighborhood characteristics in mortgage default risk: evidence from New York City

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  • Chan, Sewin
  • Gedal, Michael
  • Been, Vicki
  • Haughwout, Andrew

Abstract

Using a rich database of non-prime mortgages from New York City, we find that census tract level neighborhood characteristics are important predictors of default behavior, even after controlling for an extensive set of controls for loan and borrower characteristics. First, default rates increase with the rate of foreclosure notices and the number of lender-owned properties (REOs) in the tract. Second, default rates on home purchase mortgages are higher in census tracts with larger shares of black residents, regardless of the borrower’s own race. We explore possible explanations for this second finding and conclude that it likely reflects differential treatment of black neighborhoods by the mortgage industry in ways that are unobserved in our data.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33941.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:33941

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Keywords: mortgage; default; neighborhoods; race;

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Cited by:
  1. Been, Vicki & Weselcouch, Mary & Voicu, Ioan & Murff, Scott, 2013. "Determinants of the incidence of U.S. Mortgage Loan Modifications," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3951-3973.
  2. J. Michael Collins & Carolina Reid, 2010. "Who receives a mortgage modification? Race and income differentials in loan workouts," Community Development Investment Center Working Paper 2010-07, Federal Reserve Bank of San Francisco.

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